Himfr.com Reports Pound May Fall Below Euro In 2010, Says Economic Forecaster

The pound could sink below parity with the euro amid market uncertainty over how the British government planned to deal with its record public

sector borrowing requirement (PSBR), an economic forecaster warned on Monday.

The London-based Centre for Economics and Business Research (CEBR) said British economy is walking "five yards away from the edge of the cliff" and

could be toppled by an "unexpected gust".

The chancellor of the exchequer Alistair Darling forecast in his Pre-Budget Report (PBR) on December 9, that the PSBR for 2009 was a record 178

billion pounds (about 281.8 billion U.S. dollars),and raised the forecast for next year to 176 billion pounds.

Although he increase Value Added Tax in the PBR, from 15 percent to 17.5 percent, and raised National Insurance contributions (which pay for the

National Health Service) by 1 percent, many analysts felt he had not fully explained how he was going to fund continued public spending or how he

was going to cutback on the PSBR.

Darling is the finance minister for the governing Labour Party, which has been in power since 1997, and has won the past three general elections.

There must be a general election before the end of May next year, and Labor, under Prime Minister Gordon Brown, has been trailing in the polls.

CEBR chief executive Douglas McWilliams told the Press Association that currency markets are betting on the opposition Conservative Party winning

the next general election. With that they hope to see tougher action to address Britain's PSBR deficit -- but if the governing Labor Party shows

signs of narrowing the gap, the pound could plunge, warned McWilliams, because the PBR was not explicit enough about how it would tackle spending.

McWilliams said on balance he believed the pound would sink lower than 1:1 with the euro for the first time. "If I had to bet, I would bet on the

side of parity being broken," McWilliams said.

The pound is trading at 1.10 against the euro, although it reached a low of 1.02 a year ago.

There were also problems for the euro, said the CEBR, which faced the huge differences in the performance of member countries such as Germany and

weaker economies such as Greece or even Spain.

McWilliams said: "Whether the markets react to British fragile public finances before they react to the divergence of performance in the euro zone

will determine whether sterling drops below parity with the euro."

McWilliams told the Daily Telegraph newspaper in London: "If opinion polls show the Tory (Conservative) lead dropping well into single figures, the

markets will have kittens and probably start a sterling sell-off."

In late September Labor trailed the Conservatives by 17 points, but the gap has since narrowed to nine points, according to a ComRes poll for the

Independent newspaper on December 20 ,and to 12 points according to a Yougov poll for the Daily Telegraph on December 21.

by: himfr

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